RCED-88-4: Published: Nov 30, 1987. Publicly Released: Dec 7, 1987.

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In response to a congressional request, GAO reviewed the Farmers Home Administration's (FmHA) emergency loan program to: (1) document program changes over the past several years; (2) determine why the program's delinquency rate is so high; and (3) identify the potential loss that FmHA may incur and the alternatives to deal with uncollectible debts.

GAO found that: (1) the program's expansion to include emergency annual production and major adjustment loans increased the amount of emergency loans from $735 million in 1975 to $5.1 billion in 1981; (2) the value of delinquent loans increased from $937 million in 1981 to $4.1 billion in 1986; (3) borrowers became delinquent because of such external elements as weather, poor farm economy, and unsound farming and financial practices; (4) expanded loan program features and a liberal continuation policy that permitted additional loans to delinquent borrowers enabled borrowers to accumulate large delinquent debts; and (5) FmHA could lose about $7.8 billion of its $28-billion farm loan portfolio. GAO also found that FmHA: (1) phased out its emergency annual production and major adjustment loans and terminated its continuation policy; (2) issued new loan-servicing regulations; (3) plans to bring all delinquent accounts current through debt restructuring; and (4) will restrict loan eligibility to borrowers for whom federal crop insurance is not available.